Public Bill Committee

[Mrs Anne Main in the Chair]

The Committee deliberated in private.

Examination of Witness

Julian Foster gave evidence.

Anne Main: Our first witness is from the Childcare Voucher Providers Association. Good afternoon, Mr Foster. We have until 2.30 pm for this witness although if the panel feels that it has exhausted its questions before then we can finish earlier.

Catherine McKinnell: Good afternoon. Thank you for coming along. Is it okay if we call you Julian?

Julian Foster:  Yes, absolutely.

Q 6060

Catherine McKinnell: Could you start by setting out your views on the move away from employer-supported child care towards the so-called tax-free child care system that is set out in this Bill?

Julian Foster:  Certainly. The Childcare Voucher Providers Association is an industry body that was established to represent the views of voucher provider companies. We welcome the announcement of the additional support for working families that tax-free child care represents, particularly the expansion of the scheme to include the self-employed and those on the national minimum wage, which is something that we have been campaigning for for some time.
We are also pleased that the Government acknowledged the success of the existing employer-supported child care scheme with their intention to build on the framework that that had established with the new scheme. However, we have a few concerns about the implementation and design of the scheme, particularly around things like the removal of the valuable role that the employers play in the existing scheme, the comparative lack of progressivity in the new scheme, and the fact that many parents will not be eligible to receive the benefits of the new scheme or would be worse off under it. Finally, we are concerned about the complexity of the scheme itself and how it would operate.

Q 61

Catherine McKinnell: Thank you. One of the concerns is that the new system will remove the role of employers within the scheme. In what way do you feel the current scheme supports and encourages family-friendly practices in businesses, and how should the Government look at the implementation of this new system to ensure that that is not lost?

Julian Foster:  When we surveyed them, 94% of employers said that they feel they have a key role to play in ensuring that parents are aware of the support that they can receive through both the existing scheme and the new one. Parents have told us that they believe the employers should also be involved in the scheme. Only 9% of parents were in favour of the removal of the employer. Child care vouchers as they stand at the moment play a vital part in family-friendly policies in companies and are a key aspect of companies’ policies to help mothers return to work after maternity.

Q 62

Catherine McKinnell: Given that the new scheme is likely in time to replace the voucher scheme completely, how could the benefits from the current scheme not be lost under the new scheme?

Julian Foster:  I think that the role of the employers should be reviewed. I understand that there were concerns about whether it was an additional burden for employers, but certainly the employers we have spoken to—both small and medium-sized enterprises and multinational corporations—feel that it is something they should be involved in. Over 70% of companies tell us that they spend less than 30 minutes a month administering their existing scheme, so it is not a large administrative burden for them. Around 65% told us that they would wish to be involved even without a national insurance contribution saving such as there is on the current scheme. We feel that they have a vital role to play in this. It is not something that they would only do if they had a national insurance relief saving, as they do at the moment. They feel it is important to help them encourage mothers to come back to work after maternity leave and to be seen as having family-friendly policies within their company.

Q 63

Catherine McKinnell: It is interesting that you mention the amount of time that employees currently spend administering the system. Obviously parents also spend some time administering it from their end. But I think it forms a useful comparison, because as yet the sort of time scales that might be involved in administering the new system are unclear. Regardless of that, are you aware of the views of parents about whether they would be better off under the voucher system or the proposed new system?

Julian Foster:  We collected responses from more than 23,000 parents. Only 18% of them told us that they would be better off under the new system. That tallies with our expectations.
The extension to the self-employed is welcome. That is a group that has never had access to the scheme before. In the current scheme, over 80% of users are basic rate taxpayers. Broadly, 19.5% are higher rate taxpayers. We think that the way that the new scheme is structured, so that it is a match for what you are spending on child care, means that it will reward people who spend more on child care, who are generally the higher earners. If you are a basic rate taxpayer, your child care spend needs to be more than £9,330 a year for your family’s child care costs to be better under the new scheme. You would receive a match of £1 for every £4 on that spend of £9,330. At the moment, if you are basic rate taxpayers, you are both able to salary-sacrifice £243 a month, and that would give you a combined saving of £1,866, but on a much lower spend so ultimately, it is the basic rate taxpayers who are able to benefit significantly more than the higher rate taxpayers.
The average child care spend, according to the Department for Education’s own statistics, is just over £5,000 a year. I think the Family and Childcare Trust suggests that it is about £5,700, so we believe it is broadly within that ballpark. Anybody spending around that much on child care is unlikely to be better off under the new scheme than they are in the current one.

Q 64

Maria Miller: Julian, when you look at the basics of your business model, it is about taking a cut of a tax break designed to support families to fund your business. Can you tell the Committee how much of your profits come from that Government tax break?

Julian Foster:  Computershare is a large multinational company, so it is difficult for us to specify a percentage of the overall profit.

Q 65

Maria Miller: Roughly, in pounds, then.

Julian Foster:  In terms of the UK business and the business unit that specifically runs child care vouchers, quite a large percentage of the profits is derived from that. I think the national insurance relief cost is about £138 million a year, based on the level of participation in the market as a whole. All of that goes to companies, but they invest a large percentage of that in other family-friendly policies. The average rates that are paid for child care voucher schemes at the moment are broadly 3% to 3.5% in the market, and it is driving down constantly.

Q 66

Maria Miller: Okay. Just so I have got it really clear, how much of your bottom-line profit comes from tax breaks for British taxpayers?

Julian Foster:  A large percentage of it.

Q 67

Maria Miller: Would it be possible for you to write to the Committee to give us a more detailed answer on that?

Julian Foster:  Yes, certainly.

Q 68

Maria Miller: Okay, that would be really helpful.
The thing that we were hearing about this morning from the National Day Nurseries Association and other people giving evidence was that the market is complicated and that parents have a lot to juggle, so they want a system that is easier. Parents really want to have something that is simple and straightforward. I do not know whether I am misinterpreting your proposals, but I do not see that they make life easier for parents; they seem to perhaps ignore that need for simplicity.

Julian Foster:  The feedback that we have got, as far as parents are concerned, is that the scheme is very easy to use. They join through the company that their employer has appointed, so there is only one place that they would go to join. Once they have joined they elect a voucher amount, which is then deducted from their salary. There is actually no involvement from them in terms of making payments across to the voucher provider; it goes automatically. They set up regular standing payments to their carers in the same way that you would set up a standing order from your bank account, or they can make one-off payments. For most parents, there is actually no interaction on a regular basis at all.
Under the new scheme, not only would they then decide what that contribution was going to be when split down between their children, because they would have to operate a sub-account per child, they would also have a more complicated eligibility process to navigate. I think there is an A4 page detailing the information and the documents that they would have to provide to join. At the moment, the information that they provide to us is validated by the employer and so is not onerous for the parents. They would have to recertify on a quarterly basis that that was still the case, whereas at the moment they do not have to do any of that. All of their vouchers are accredited to one account, and they can choose to spend it for whichever child they wish, however they wish. Going forward, it is going to be ring-fenced on a per-child basis. I think that is more difficult for working families and parents to juggle and manage than simply joining through an employer’s scheme and having it deducted from their salary.

Q 69

Maria Miller: I guess what I was pressing at was having a multitude of different ways into getting tax breaks rather than having one way, which would be to have the tax-free child care through an account—

Anne Main: Sorry, Ms Miller, could I just ask you to speak up a bit? The volume is not very good on the speakers in here.

Maria Miller: Apologies. What I was really pressing at was that parents want simplicity in the number of ways to get tax-free child care. One thing that some voucher providers have talked about—I think your organisation has as well—is actually delivering tax-free child care accounts themselves. We were hearing this morning from National Savings and Investments about the volume that this could entail: up to 1.9 million potential applicants. Indeed, that number could be even higher if applicants have more than one child. Are you sure that you can deliver that scale of operation, given that the number of people who currently get child care vouchers is significantly lower than that?

Julian Foster:  Certainly. If you are looking at us and thinking that we are small or medium-sized enterprise, as a number of the voucher providers are, then that is a misapprehension. We are the world’s largest share registration company; we manage millions of records on behalf of multinational plcs around the world; we manage the deposit protection service for the Government; and we look after the Treasury gilts register. So we are quite capable—

Q 70

Maria Miller: But how many parents with child care vouchers do you currently have in the UK?

Julian Foster:  On our books, about 130,000 are actively receiving in a regular month, but we have about 250,000 registered to take our vouchers.

Q 71

Maria Miller: So is moving from that to an operation of the scale of 1.9 million something that you feel you can achieve?

Julian Foster:  Yes, absolutely.

Q 72

Lucy Powell: Hi, Julian. I will declare an interest: I am a child care voucher user. It is a simple scheme for a large number of people who use it. On transferring that to the proposed scheme, have you done any analysis about the clearest loser group—single-earner families? Do you have any figures on how many single-earner families currently receive child care vouchers? As a sub-group of that, do you know how many families there are where one person works and the other is in training or education, who will therefore lose out under this scheme?

Julian Foster:  We have not been able to get public statistics, but, based on the information that we have received from parents when we have asked them that question—23,000 responded to us—about 20% said that they already knew that they would not be eligible for the new scheme when it comes in. On the basis of existing child care voucher users, that is about 125,000 people. At the same time, one in five parents told us that if they could not continue to receive child care vouchers, they or their partner would have to give up work, and about 38% said that they would have to reduce their hours. There is a significant economic impact that needs to be taken into consideration.

Q 73

Lucy Powell: You were talking earlier about how the new scheme will work—how people pay into it and get out of it, revalidation and so on. Many families use the current scheme to pay for school holidays: they pay in throughout the year and then have a large outgoing during the summer holidays. Will people be able to do that to the same degree under the new scheme?

Julian Foster:  Yes. On the basis of discussions that we have had and the information that we have been provided with, it looks like that aspect of the scheme will continue to operate. Parents will receive the benefit for the amount of contribution they are putting in at the time they put it in. However, there is one key difference, which is the proposal that if funds are not used after 12 months, the subsidy will be clawed back. At the moment, if you are lucky enough to have some support from family and you do not use all of your voucher allowance, you can build it up to use for specific events, and people have been known to do that for a number of years. That has not necessarily been done just within one year to use it all in the summer holidays. It is true to say, though, that the majority of people use their vouchers for pre-school care—it is 40% with childminders and in the high 30s with nurseries.

Anne Main: Three Members wish to ask questions. We have 10 minutes for that and to get the answers.

Q 74

Charlie Elphicke: Julian, I was just trying to understand what your objection is. At the moment you have a voucher system and the Government will be targeting this much more at the child care costs of hard-working parents. What do you object to other than the political choice being made?

Julian Foster:  I do not particularly disagree with the choice being made at all. As I said, we are very supportive of tax-free child care as a policy. We have some concerns about how it is going to be implemented. It was intended to be simple and easy to use. The complexity around the sub-account per child, the need to ring-fence the spend per child, the eligibility process and the need for recertification are all unnecessary. That is my point. We have welcomed tax-free child care and the expansion to the self-employed and those on the national minimum wage.

Q 75

Charlie Elphicke: What we are doing, effectively, is shifting what was a generous tax break to employers much more directly to the parents. Do you welcome that?

Julian Foster:  Well, 15 million people have access to the current scheme through their employers. Over 50,000 companies operate it; they employ just over 15 million people, which is roughly 50% of the working population. As you say, the new scheme is targeted at 1.9 million working families. That is a policy decision—it is a political decision to make and is not something that we have any fixed view on.
Ultimately, we are looking at protecting the interests of the parents, the child care providers and the employers whom we act for at the moment, and representing their views. What they are telling us is that the new scheme looks a lot more complicated on the face of it than they think it needs to be. We are simply bringing those points to the fore.

Q 76

Charlie Elphicke: But can you see, from our point of view, why we want it to apply to the many rather than the few?

Julian Foster:  I do not think that 1.9 million working families—[Interruption.] It is targeted, as you said, and “targeted” generally means that the same tax spend is being used for a smaller group of people. Fifteen million people have access to the current scheme; 1.9 million will be eligible for the new one. Those are the numbers that I am aware of. I am not commenting on whether that is a social engineering decision or policy. It is simply that the statistics that we have been provided with show us that a smaller group of people will have access to the new scheme.

Q 77

Nicholas Dakin: What is your view of the Government’s decision to task NS&I with delivering child care accounts?

Julian Foster:  The Government are entitled to appoint whomever they wish to operate the scheme. Our major concern with NS&I being appointed originally was that that was not an option that had ever been consulted on, so we were unhappy that the Government had chosen to do something outside their original consultation.
NS&I is a very well respected organisation that manages millions and billions of funds and accounts, respectively. However, it does not operate with child care providers. There is the emotional aspect of making payments for nurseries: if that payment is not there on time or the carer cannot reconcile it and does not understand that that payment is for such and such a child, parents will find difficulties with dropping their children off at school. That aspect of what we do is a large part of our administrative operations and is something that NS&I does not currently do.
The other point I would make is that we feel that, without going out to tender, the appointment of NS&I cannot be certain to ensure best value for taxpayers. Our objections are not about NS&I being appointed, but the failure to follow due process and go out to tender.

Q 78

Nicholas Dakin: Do you foresee any other challenges for NS&I in delivering the child care accounts?

Julian Foster:  As has already been mentioned, it is a significant size and a significant investment. With any IT infrastructure investment of that size needing support—something on that scale—there could always be complications. We would suggest to the Government that they should think about a plan B, to make sure that there is something there to offer parents when it goes live.

Q 79

Andrew Jones: NS&I seems to me to have the benefit of a Government guarantee on parents’ money in a child care account. If parents were depositing their own money with a voucher provider how would it be guaranteed that their money was protected? A comparison might be the Farepak situation: the money had been deposited and then that particular provider went bust.

Julian Foster:  I believe that was Christmas club accounts.

Andrew Jones: It is about protection if the companies go broke—that is my point.

Julian Foster:  I appreciate that. I would point out that a number of voucher providers ring-fence their deposits from working capital. That is part of the CVPA code of practice. Our company operates regulated funds in other areas of our business. We treat these in the same way as we would those. It would be quite easy for the Government either to require the provider to operate them through a trust, in escrow, or extend something like the financial services compensation scheme to encompass this type of product.

Q 80

Andrew Jones: That sounds quite complicated to me. You are talking about a lot of different measures.

Julian Foster:  Having spoken to our Treasury and compliance teams, we do not believe it is.

Q 81

Sammy Wilson: You have mentioned that one of the deficiencies you saw in the proposed scheme was that it was less progressive than what you would have had under the existing voucher scheme. Can you give us some detail on how you reached that conclusion?

Julian Foster:  Under the existing scheme you can sacrifice an amount of salary, depending on your tax band, so the lower you are on the income scale, the more you can sacrifice. Basic rate taxpayers can sacrifice up to £243 a month. That will give them a tax and national insurance saving of £933 over the year. A higher rate taxpayer can sacrifice only £124 a month, giving them a lower overall saving of £623, and at additional rate they can contribute slightly less again, so that is £110, and they save £623 as well.
The old scheme allows basic rate taxpayers to receive greater support with their child care costs. Under the new scheme, because it is a flat rate of 20% or £1 for every £4 they put in, there is no distinction between where you are on the income scale, so people earning £149,999 can benefit the same as somebody earning £20,000.

Q 82

David Heath: Most commentators—including those who have given the evidence we have already heard in Committee—suggest that one consequence of the Bill will be a massive expansion of provision. From your point of view, I think you are saying that a significant proportion of people will be worse off under the scheme and that a significant number of people would no longer be able to take advantage of tax-supported child care and may therefore find themselves not being able to work as a result. Your view is that there will not be the massive demand that the providers expect.

Julian Foster:  I think there will be a demand, but perhaps from a different group.

Q 83

David Heath: So it is people who are less well off.

Julian Foster:  Indeed. I believe there are 4.5 million self-employed people working in the UK at the moment, and I think 1.25 million of them have children under the age of 16. The new scheme age is under 12. There are no statistics to tell me how many self-employed people there are, but it is reasonable to assume there are broadly 900,000 who have children, and they would be eligible. That group has never had access to support with child care before. I think there will certainly be a big uptake from people who are self-employed.
What we are saying is that, of the existing users—broadly about 600,000 users of the current scheme—over 80% are basic rate taxpayers. When you apply a comparison between the two schemes, the new scheme is not as favourable for them as the old scheme is, and that is the point I am highlighting. So I think there will be an uptake from people who are self-employed and the higher earners under the new scheme, but I think basic rate taxpayers will not be as advantaged. Clearly, single families where only one parent is in work will not be able to access the scheme. Those are the groups that I think will be most affected.

Anne Main: Mr Cunningham, please be brief. We need to finish.

Q 84

Alex Cunningham: Sure. You have told us at great length how complex this is, how the better-off benefit most and how there will be fewer beneficiaries in the long run. Can you tell us what needs to change in the Bill to correct what you see as the faults?

Julian Foster:  I think it comes down to four things. The eligibility needs to be looked at again so that the process of joining the scheme and enrolling is not as complicated. On the need for quarterly recertification, people should be asked only to advise of changes to their status and circumstances, and not necessarily have to go and reconfirm that everything they have already said is still the case. I think the ring-fencing of the subsidy so that it operates on a per-child basis, particularly for families of three or more children, is complicated and perhaps unnecessary—[Interruption.]

Anne Main: Order. I am afraid that that brings us to the end of this session, but if you would like to write to the Committee to clarify any other points you wish to make as a result of the question from Mr Cunningham, I am sure that it would like to hear from you. Thank you very much.

Julian Foster:  I will. Thank you.

Anne Main: On behalf of the Committee, I thank the witness for his evidence. Will the next witnesses move through, please?

Examination of Witnesses

Anne Longfield, Sarah Jackson and Katie O'Donovan gave evidence.

Anne Main: If we can go from left to right, please, will the witnesses introduce themselves for the record?

Anne Longfield:  I am Anne Longfield, the chief executive of 4Children.

Sarah Jackson:  I am Sarah Jackson, the chief executive of Working Families.

Katie O'Donovan:  I am Katie O'Donovan, the head of campaigns and press at Mumsnet.

Lucy Powell: Are you all okay for us to call you by your first names?

All witnesses indicated assent.

Q 85

Lucy Powell: Thank you very much for coming. By way of introduction, would each of you say a little bit about your overall views of the scheme, highlighting any concerns you may have? I will then ask some other questions. Shall we start with you, Anne?

Anne Longfield:  Thank you. 4Children welcomes the additional help for parents to help pay for the costs of child care. We have been aware for a long time that child care costs are a really debilitating factor for an awful lot of parents—indeed, that they were quite prohibitive in terms of work. We valued employers’ involvement in the employers’ schemes, so we would not want to lose their engagement, however it was run. None the less, we welcome the fact that this is universal. It becomes part of the way we do things in this country and, not wanting to undermine the comments made about its implementation, it is easily understandable for parents, which we think is very good.
In terms of some areas to highlight that we think you need to keep a careful eye on, one is a need to create some very smooth links between those who are on universal credit and those who are not, because there is potential to fall through some of the cracks there. We think there is a need to include a review for potential annual uprating, year on year, because it is a set amount at the moment and child care costs will change over time. We think there is a strong argument about looking at whether the upper age should be 14 rather than 12, because that is the age up to which most parents are seeking child care. The final point was about not losing employer engagement in that.

Sarah Jackson:  I broadly echo all those headlines. I am very pleased that there is additional help. Where an amount of money has to be spread very thinly, I am sorry that it is not absolutely focused on the poorest families; it is a shame that we have gone above basic rate taxpayers on this. I am very anxious about the loss of the employer link, which I would be happy to talk about later.
Although Anne said that it is simple, I think it is simple if you qualify, but it is very complicated if you are borderline between universal credit and tax-free child care. It is difficult there.
We are particularly concerned about the additional costs faced by parents who have disabled children. We would like to see, for example, qualification going up to the age of 18, not 16, and we would certainly like to look at some way of increasing the percentage that is drawn down by parents who have got disabled children. 
We are concerned that this scheme involves the necessity for both parents to be in work. There is a risk when someone drops out of work for any reason—if they are made redundant or if they are training—and I would like to look at what we could do to help in that situation.
Finally, there is a really big issue about the messaging around the whole scheme. It must be made clear to parents so they understand that it is a contribution towards what they pay, up to a maximum of £2,000, and that it is 20% of what they actually pay. Otherwise, there is a real risk of great disappointment and a backlash once parents understand that it is not a £2,000 cheque from the Government.

Katie O'Donovan:  I would like to echo lots of those points. I will not go into detail about how significant this issue is for parents because you are all aware of the cost of child care, but I want to highlight one statistic. We did a report with the Resolution Foundation earlier this year and found that 67% of mothers in work and 64% of those out of work see child care costs as the biggest barrier to taking on more employment, which highlights the economic gain for everyone. Mumsnet recognises that this is a significant contribution to the child care costs that people face. We thought the representation and consultation worked well to include over-fives from the beginning of the programme and to increase the limit.
We are concerned that there is no opportunity for costs to be reviewed on an annual basis. Good work from colleagues in the sector shows how fast child care costs rise, and if there is no incentive or safeguard to prevent providers from putting up their costs, we could quickly see this significant investment not making a big change to parents’ costs. We are pleased to see that there is a provision in the Bill to ensure there is no charging to parents for the contribution. It would be a significant concern if that were to change.
We would like to echo the points that have been made. Mumsnet is the biggest online support network in the country for parents with disabled children and children with special education needs. Being able to use child care support when you need respite is an important factor that could be included in the Bill. Others are tabling amendments, and it would be good to see support for them and for extending the age provision from 16 to 18.

Q 86

Lucy Powell: Thank you. I will pick up a couple of points. Katie, perhaps we can all expand on the point you were just talking about. We all know that child care costs are rising exponentially, and that the supply of places is at best flat, if not in decline. There is a supply and demand issue as it is, and this scheme will pump money and more demand into the system. What is your assessment of the impact it will have on the child care market and prices?

Katie O'Donovan:  I am probably not best placed to talk about what impact it will have on the child care market. It will help parents to meet existing costs, but they are at the mercy of the market at the moment. In places where demand outstrips supply, they will have to meet increasing costs, as they have done over the past five years, during which it has gone up by about 27%.
Although the extra support is welcome, if there is no guarantee that supply will increase we must pose a big question about what will happen over the next five years. When we ask our users whether they would prefer universal provision, or a tax incentive or tax support, they have previously supported increased food vouchers or food benefits, similar to this scheme. Part of the problem is that when they collect what should be the provision at the moment—the 15-hour free entitlement—it is not there in many cases, which gives you a real credibility gap. If universal provision were extended, it would actually meaningfully be there in their communities. It would not be there theoretically for other people.

Anne Main: Could I just ask you to keep the answers a little shorter, because quite a lot of Members would like to probe and there are three of you, so there may be trouble getting all the points in?

Sarah Jackson:  I would back up what Katie said on that.

Anne Longfield:  It is untested. We do not know yet. There is such fluidity around parents’ choices that we do not know what the impact will be. What we do know is that a lot of families make decisions about the volume of work based on the hours of child care they can afford, and the scheme will hopefully enable them to extend that. One of the things that parents say is that is not only about re-entering the workplace, but about extending their employment.
We are still talking about the need for a parent to find 80%. I do not want to be churlish about the 20%, but 80% is still a significant amount for parents to find. I do not think there is going to be a sky-high increase in demand, but it could be steady over time. It could be about extending employment, rather than about bringing new people back into the field.

Q 87

Lucy Powell: Maybe this one is more for you, Sarah. Can you perhaps expand a bit on what you said about the interaction of this system with the current tax credits, soon to be universal credit, and any feedback you have had from working families about how they might manage those parallel systems and moving between them?

Sarah Jackson:  The difficulty about moving between the two systems is that it is enormously complicated. It is not really as simple as saying, “Would you be better off on universal credit or would you be better off using tax-free child care?” What parents really want to think about is the number of hours that they want to work to be with their children.
The kind of calls that we get are from people saying, “I would quite like to change my working hours.” I spoke to the advisors who said that today they had a call from someone whose family income is £40,000. She is not currently claiming any help from tax credits at all and her weekly child care costs are such that she probably could. She did not understand that there was any help that she could get and I think that parents find that sort of partial help, the percentage, quite difficult to get their heads around. She was also quite convinced that although she wanted to reduce her working hours from four days to three, she would not be able to afford to do so. She was finding it very difficult to get her head around the fact that if she reduced her hours, she would reduce her income and therefore increase the amount of help that she would get from the state.
It is an issue now between tax credits and vouchers, but it is going to be more complicated between the new system and universal credit. One of the big things that we have got to think about is how do we create an information system that makes it very simple for parents to be able to work out what is the best opportunity, or the best combination of working hours and help from the state, for their family. The real difficulty is that there are so many variables, as I understand from colleagues more involved in the advice giving than I am, that they are not sure that one could build an online model.
What parents need to be able to do is scenario planning; they need to be able to say, “What would happen if?” I suspect that we could have an online tool for parents to access where at the very least they would know whether tax-free child care or universal credit was for them and where the people in the middle were just signposted and told, “You are going to have to speak to an advisor.” My benefits advisors are saying it is probably a 40 minute conversation to really unpick it for people.
People’s incomes change. When you are in that group, they change. We get a lot of people who phone up and say, “I am on a flexible contract,” which may or may not be zero-hours, but people’s working hours change a lot and so their incomes change frequently.

Q 88

Maria Miller: Sarah, building on that point and from the conversation we were having this morning about how to get information most readily to parents so that they can make those informed decisions, you mentioned an online service there. Could we broaden out that conversation to the other two panellists here so that they give us their thoughts on that? Getting good information to parents is really important.
In the interests of time, may I pose my other question as well? It is about disabled children, who I think Katie was talking about. I know that short break funding is often used to support after-school clubs, but what other information could the witnesses give to help us understand how important short break and respite care funding is for working parents? It can so often make the difference between staying in work and not being in work.

Anne Longfield:  Starting with the information, we need to ensure that this is understood, valued and accepted by all those people who come into contact with families who could possibly benefit. That is one of the crucial things. We are talking health visitors, schools and the whole remit of people to whom families might come for help and advice or to talk about other things. That is one thing: using and getting that good information out to others.
You cannot overestimate the value of public information campaigns, which are running really well in some areas around the two year-olds and have, in the past, around other forms of child care help—buses, bus stops and all of those things. People start to see them and notice them, and it starts to become an area of discussion. We know that word of mouth is very important with that. Certainly, there are some key points where parents are—schools, health centres and GPs—and it is really important that this information gets out there.
In terms of the after-school club, I think what we are talking about is a high-quality environment where there are trusted, skilled individuals who can help to support children and help them to learn, develop and flourish as individuals. What all parents want is to be able to work with peace of mind, and those with disabled children are no different. The capacity to do that in after-school clubs is immense, and at the moment it is not really maximised.

Sarah Jackson:  When we are specifically looking at children with disabilities, it is worth reminding ourselves of the difference in costs. The average cost per hour of child care for a child who does not have disabilities is £4.50. When we have done surveys on children with disabilities, we have seen that 86% pay above average, 38% are paying between £11 and £20 an hour, and 5% are paying more than £20 an hour. That impacts on parents’ ability not only to work but to pay for respite care or, indeed, for swimming lessons at the weekend for the child. There is every good reason for thinking that here is a group of families who really need and can benefit from additional financial support from the system.

Katie O'Donovan:  I think that that extends to families who have children with special educational needs and without special educational needs. Sometimes it is very difficult to have quality time with either child when you are constantly also caring for someone with additional needs. There is tale after tale on Mumsnet of people who are not able to access the free provision available to them because there is no one in the area who provides that specialist care, or they say, “We have to care for your child on a one-to-one basis, and the free 15 hours just does not cover that so we will not take your child.” There are two elements: one is really about the well-being of the family as a unit, and the other is about there being a place where you can access the child care that you should be entitled to.
What has been said on information is absolutely right. I think an online tool sounds good, but if you build it, people have to come. If there are no traffic drivers or advertising to send people to the site, it simply will not work. We have an old saying—I am from Mumsnet, but there are other sites like Mumsnet—“You’ve got to fish where the fish are.” If you are building something for parents, it does not need to be a brand new website. It does not need to be a new, exciting, brave world out there. Harness where parents are already online and really give them that information.

Anne Main: I am going to call Catherine McKinnell. After that, could we ask one question each? We can always have another bite at the cherry if we have time left at the end.

Q 89

Catherine McKinnell: You have all mentioned the importance of having employer engagement in the provision of child care support. Do you feel that will be lost under the new scheme? What would you recommend or advise the Government to do, to try to mitigate that?

Anne Longfield:  I will start in broad terms, and I am sure that Sarah will add to this in some detail. We have seen employer engagement in child care fluctuate hugely over the past 20 years. There have been some times when it has been seen as a labour force issue and there has been a shortage, so employers have got more involved; then they have gone away, and they have come back again. Certainly, it is something that is there at the moment.
As one of the stakeholders, if you like, who benefit from child care, I do think employers have a role to play. What we do not want is for employers to think that the state is looking after the matter now, so there is no role for them. I think that employers have a valuable contribution to make. Some of that might be financial, and it certainly will be around working conditions, flexible working and the like. It might be about support and practice. Certainly, in terms of keeping that engagement, there needs to be some proactive work from the centre to reach out to employers and find a way of linking them in and keeping that profile and good practice about their engagement.

Sarah Jackson:  If we think back—we have been around this block rather often—to the mid ’90s, there was a campaign called Employers for Childcare, which was led by the then Lloyds TSB. That was concerned with building a business case for why child care was important to British business and saying what business could do to support it. That contributed significantly to the 1997 Government’s national child care strategy. All that was being done at a time when flexibility as we know it today was completely undreamed of. The then child care strategies were based around child care being needed from 9 to 5, Monday to Friday, but we are now in a world where parents are being asked to work early mornings, late night shifts and weekends. We really need to go back to what the business case is. Why does business, and why should the public sector as an employer, care about child care? There is a real role for Government in talking up child care as part of the economic infrastructure and the necessity for employers to become engaged.
The other thing is an issue of equality at home and work, and about support for fathers at work. At present, not only do employers who provide vouchers know their parents, but many know the fathers, who are usually the invisible parents at work, and I feel that by unpicking this link, by taking employers out of the new system, we are pushing against the policy objectives of shared parental leave, which is about fathers and mothers being brought into focus at work and being able to take part in child care. It is unfortunate that we have lost that link.

Katie O'Donovan:  The only thing I would add is that employers are perhaps part of the public information message about how parents decide which is the right system for them to be in. That is part of the conversation that they know is essential for their employers to have, too.

Q 90

Catherine McKinnell: That takes us back to the universal credit issues that you were raising and some of those complexities. You mentioned, Sarah, that the new system is likely to make things much more complicated. I want to understand what it is about the new system that adds to the complexity—

Anne Main: We will need a very brief answer, because so many Members wish to ask questions.

Catherine McKinnell: Is it the fact that it is now on a per-child basis? Obviously, that is a fluctuating requirement for parents, but now we also have a much more flexible work force—zero hours contracts are a reality for large working families as well.

Sarah Jackson:  It is because low-income families’ situations change so rapidly, so it is difficult to get a hold on the best option. You may have things to add, Anne, but I know that the Committee probably has better witnesses than us in the next session.

Anne Longfield:  Yes. I guess that one of the things is that there is huge fluidity about being in work or out of work. There is also very temporary work that families are taking on. If the two systems are not seamless, we do not want families to get stuck in one, not being able to get support to get through to the other. If a journey is there to be made, we want a system that can help families through it, with those who can advise and help people to get through it.

Q 91

David Heath: One point that several of you made was about the need for annual uprating. I have a “stupid boy” question. I am well aware that thresholds and caps often get out of date if they are not uprated, but we are told that this £10,000 cap is way beyond the average spend at the moment. First, if we had an annual uprating, would you expect any movement in the foreseeable future? Secondly, ought the contribution percentage—the 25%—to be subject to annual assessment also?

Anne Longfield:  My answer would be yes to both those questions. Yes, most people might work part time and be drawing part time, but a lone parent in London would be claiming the full amount if in need of the child care costs, because that is how much they would be. We are talking £200 for a nursery easily, and that is not the top end.

David Heath: In Somerset, we cannot find a nursery at all, so we are ignorant about these things.

Anne Longfield:  In terms of the amount, one child and a £200-a-week nursery easily gets people to that position, so we would expect the amount to go up. Actually, it did go up during the period when it was being considered. We would expect it to go up year on year, so there is an issue of just keeping up with price, but there is also another issue of reflecting on whether £2,000 is enough and is the right amount to be a driver for all the things that we want to see, which is to do with parents being able to flourish at work and at home.

Katie O'Donovan:  I think that is a really important point, because the assumption can easily be made that the richest people have the most expensive child care. I have looked for evidence of that and found it difficult to find. If people are paying for a full-time nursery place in London, or in about 25 local authorities that the Family and Childcare Trust looked at, then they are paying £10,000 a year, and they could be doing that on a relatively low income in order to stay in work.

Q 92

Nicholas Dakin: I might have misunderstood this, but you seemed to suggest that higher-income families would benefit more from this than lower-income families. Is that right? If so, is there anything we can do to address that?

Anne Longfield:  I can give you some analyses that show that. I think Resolution is the main organisation that has put some of those forward.

Katie O'Donovan:  I am not sure if the point is that they will benefit more, because everyone will benefit at the same level. It is about whether, if you look proportionally at how you are spending the whole envelope of funding, it is spread across people who earn up to £300,000, rather than focused on people who earn up to £50,000.

Anne Longfield:  Two parents can earn £150,000, so it is in-built.

Sarah Jackson:  Whereas two parents earning £40,000 is £80,000 a year, and that is a pretty good family income.

Katie O'Donovan:  That is the difference between where the thresholds are set for this and, for example, child benefits—something that is very much at the front of parents’ minds in their analysis of it.

Q 93

Mary Macleod: Anne, you put it really well when you said that this is about more parents being able to flourish at work and at home, and that is the whole aim of the Bill. As we all know, child care is a major issue for parents and a large cost. I heard the wish list of additional things at the beginning. If we get the communication right, which is extremely important, do you think that this will reach out to and help more families and children across the spectrum? We are trying to get to many more families, to help them flourish at home and at work.

Anne Longfield:  I think that, by making this a part of life and universal, it becomes part of the way we do things; that is the benefit of universality. We can talk about the starting point, the 20% and other aspects of it, but by making it part of life, it becomes an accepted norm that people expect. Expectation is a great thing when you are looking at your plans for the future, in terms of work and parenting. This is a significant move, in terms of both the amount and the cultural step that Government and society take if parents are able to work and bring in income. I do not have the estimates at my fingertips, but the amount that an increase in the maternal labour force would bring in is certainly quite significant. It is something that will pay for itself, but it is also a big cultural step.

Q 94

Andrew Jones: I agree entirely that families, parents and societies are stronger if people are working. The universal credit is having a trial roll-out in my constituency; it has gone extremely well and has been well received by users, the jobcentre and employers. I am very keen to know why you think people might fall through the cracks—that was the phrase you used in your introductory remarks—and why you think the interface between this and the tax-free child care system will be very complicated, particularly as the system has not yet been designed.

Anne Longfield:  The issue with the transition of universal credit is about two systems and people not being clear how they work, as well as the fluidity of jobs—people being in or out of work. Where there is good back-to-work support, which might be from local employment agencies or Jobcentre Plus, we see that families can find their way through that very confidently. Without that support, however, it starts to become quite unwieldy for people and they might not be able to make the leap into employment and make the journey towards financial independence that we want them to make. That was my point.

Sarah Jackson:  There is also the difficulty, when you are on universal credit, that there is a disincentive for the second earner to work. You want the family to get to the point where both parents are able to work a certain number of hours a week if they wish to. Families will face cliff edges and will need real help to understand the point at which they should move from universal credit to tax-free child care, so as to optimise their family incomes and their time with their children.
Another thing we are very worried about, which is not just about universal credit, is people dropping out of the work force. To have tax-free child care, you both have to be working. With vouchers, only one parent needs to work. If one of you is made redundant, you have a three-month reassessment period. It is fine if you lose your job on day two—it is never fine if you lose your job, but if you lose your job on day two of your reassessment period, you have very nearly three months to find a new job before you have to notify someone of your change in circumstances. However, if you lose your job on day 89, you will notify someone of your change in circumstances and you will drop out of eligibility for tax-free child care. That could hold the person who has lost their job back from ever re-entering the labour market. We have a real worry there that we would like to see addressed.

Q 95

Charlie Elphicke: There is a lot of mood music, particularly from working families, that suggests that employers being aware of and involved in the child care requirements of staff is to be welcomed and promoted, but many of my constituents say to me that they feel that, frankly, with tax credits and child care arrangements, their employers know too much about their lives. What do you have to say to them?

Sarah Jackson:  I would say that when we see people who are working for good employers, it helps the relationship at work if the manager knows at least a bit about their employees’ family lives. We have campaigned hard, and we are very pleased that the Government extended the right to request flexible working to all employees. The basic tenet of that is that your request for flexible working should be reason-neutral. That makes it a lot easier for a manager to manage, because he or she can think just about the business reasons. However, it is also true that it really helps a team if everybody understands everybody else’s family commitments. It means that you are less likely to get the kinds of distressed calls that we take on the helpline, in which somebody has a change in their contracted hours imposed on them; for example, a father who is used to being able to take his child to school in the morning is suddenly told by his manager, “You have to start half an hour earlier.” That can lead to somebody dropping out of the work force. I understand, because we take calls from parents who have bad relationships with their managers, that parents will often feel that they do not want their employer to know too much about their personal lives, but actually, in a well functioning workplace it really helps.

Q 96

Charlie Elphicke: Do you accept that parents should have a right to privacy, and not have a level of intrusion by their employers into their personal lives that many parents do not want?

Sarah Jackson:  Absolutely, and under the present voucher system it is the parent’s choice to say, if the employer is offering vouchers, whether they would like child care vouchers or not. Where they have chosen to take child care vouchers, it benefits them and the employer if the employer can see the pattern of family responsibilities across their work force, so that when the organisation is thinking about changes and redeployments, they understand the family and personal impact that changes might have.

Anne Longfield:  I understand your point about parents not wanting to have their employers scrutinising all the interiors of their lives, but I think that what they do want, if they want a certain response or a change in working from their employer, is to know that their employer is going to give them an informed and hopefully sympathetic response, in the broadest sense. That does not necessarily mean that they have to know everything about their life, but it does mean that if someone says, “I have a particular issue at the moment, and it would really help me if I could do this for the next four weeks; can we give it a go?”, the employer is informed enough about what that means to be able to come back with a good management decision, which will hopefully be, “Yes, we will go with it for now and then review it.” It does not necessarily have to be the ins and outs of every intricacy of personal life; it just has to be about a broad context and an understanding of that.

Q 97

Catherine McKinnell: One of the issues that arose in evidence this morning was not just the quantity—the supply-side—of child care, but the quality. Obviously, with additional welcome money being put into the child care support system, the nannies association, in particular, would like an increase in the quality of child care as a reflection of that. Do you have any thoughts on that? Do you have similar feedback, for example, to Mumsnet or other organisations?

Anne Main: In answering that, please focus on the remit of the Bill.

Katie O'Donovan:  Within the remit of the Bill, I am not sure that there is anything that directly relates to what our users are concerned about or talk about with child care quality. When people have made a decision and are undertaking that child care, they usually report high satisfaction levels to us. They look to external organisations such as Ofsted to reinforce their views, and they look for peer-to-peer recommendations, too.

Catherine McKinnell: Sorry, but I just want to clarify how this relates to the Bill. Obviously, to access child care, the Bill requires you to register with Ofsted.

Katie O'Donovan:  Some pockets of the country have real difficulty accessing what parents and Ofsted see as good child care. Changes to Ofsted’s inspections of early-years provision mean that parents can go quite a long time without having up-to-date Ofsted reports. That is interesting, and it is one to watch, but it is not front of mind in relation to the Bill.

Q 98

Catherine McKinnell: We have also been looking at the delivery. I would be interested to hear your thoughts about parents’ experience of the simplicity of the processes involved. We have looked at the complexities of universal credit, but under the current proposal, NS&I would be a sole provider of this new provision. There are concerns that this is a very large undertaking for one organisation to process, and many, many families could potentially be looking to register in a very short period of time as the provision opens up to a wider number of parents than are currently accessing the vouchers. What are your thoughts on that? Should there be contingency plans, given that there is a legal wrangle about who should provide this, which could possibly delay the 2015 implementation date?

Katie O'Donovan:  In terms of the implementation date, when the proposal was floated and refined in 2013, one of the biggest criticisms was the long wait. Anything that further delays it will cause massive frustration among parents, because this is good jam, but it is jam tomorrow at the moment. We have encouraged parents to think about whom they would like as providers, and they are pretty much agnostic. They want a system that works and that they can trust, they want something confidential, and they want something that will not end in a farce. Whether one provider can do that or whether there is a need for more providers is a question for the specialists. Parents do not want much more than you would expect.

Sarah Jackson:  I read the HMRC research that was published last week. In the focus groups, parents were clearly saying that it does not have to be a single, monolithic provider; a few providers would be fine. If having a few providers sped up delivery, I think it would be more acceptable to parents.

Anne Longfield:  It has to be accessible for parents, and it has to be free. We should not underestimate the interest from parents. We are doing this for a reason, which is to help parents work. We are doing this to try to change the level of support, and we should therefore plan to maximise it and ensure that there is plenty of information out front. We should plan for it to be working on day one, because if it is not working, many parents will feel let down. Going back to your last question about quality, there is another piece of work that probably lives in the Department for Education. That work is about using this impetus on child care to look again at quality and how to support flexibility. As Sarah was saying, we know that a lot of child care is still operating on a model based on office hours, but we are talking about flexible working, which needs flexible child care. That is another piece of development work that we should look at holistically.

Anne Main: Are there any further questions from the Committee? In that case, I thank the panel on behalf of the Committee. We will now move on to the next group.

Examination of Witnesses

Sue Royston, Victoria Todd and Ellen Broomé gave evidence.

Anne Main: We will now hear evidence from Citizens Advice, the Low Incomes Tax Reform Group of the Chartered Institute of Taxation, and the Family and Childcare Trust. We are starting a little early and we will finish at 4 o’clock. Will the witnesses, from left to right, introduce themselves for the record?

Sam Royston:  I am Sue Royston. I work as a senior policy researcher at Citizens Advice.

Victoria Todd:  I am Victoria Todd. I am a technical officer with the Low Incomes Tax Reform Group.

Ellen Broomé:  I am Ellen Broomé, director of policy and research at the Family and Childcare Trust.

Anne Main: Thank you. I will have to ask that you project your voices, because the room does not have good acoustics and I gather that the speakers are not working terribly well.

Q 99

Catherine McKinnell: Thank you for coming to give evidence. Do you mind if we refer to you by your first names? No? Thank you. Will you start by summarising briefly what your views are on the Bill that we are discussing?

Sam Royston:  Like the other witnesses, we welcome the extra spending on child care. It is important. Our particular concern is about the interaction, and I know that you have just heard about that. We are very concerned about it. Any change in income or circumstances will change whether someone is better off on tax credits, tax-free child care or universal credit. Lack of parity between the various systems further complicates that. In particular, the caps are different, so whether you are able to average costs and whether you are paid in advance or in arrears will affect your choice.
The matter is not as straightforward as just looking at a particular point in time. Tax credits are based on yearly income, so you might be eligible for more support from tax-free child care at one point, but because you are pregnant you may lose a significant amount of money if you change to tax-free child care. Similarly, if you have a fluctuating income, because you can switch only once on tax-free child care, you might be better off waiting until later in the year. All of that makes the complexity difficult.
Our main concern is that interaction, but there is one anomaly that we are concerned about in who is eligible for tax-free child care: people on tax credits who are not eligible for any help with child care.
Our third point is about looking at a smooth journey between systems and smoothing it out. There has been a lot of focus on delivering tax-free child care, but very little attention has been given to looking between the systems. We would very much welcome the Bill being amended so that tax-free child care could go ahead, as it is in the Bill, but with further consideration of all the interaction so that there is a smooth journey. For example, if it was decided that child care accounts would be useful—we think they would be useful for universal credit claimants—people could claim them without the need for further primary legislation.

Victoria Todd:  We have many of the same concerns as those Sue has mentioned. We are particularly concerned about the complexity and how that will be communicated to people, what guidance will be available, and better off calculators. We are also concerned about the complexity not just of universal credit and tax credits but of other things like passported benefits, and about how everything will have to be taken into account to work out the position.
We have some concerns about the self-employed and about how the scheme will work for people who may have a loss in an entitlement period, but who may well make a profit over the annual period. Our main concerns have been covered by Sue—particularly those on the tax credit anomaly. We are concerned that people will not realise, because they are not getting support in tax credits for their child care, that if they go to tax-free child care, they will lose the rest of their tax credit award. That is a huge concern.

Ellen Broomé:  We, like the rest, welcome the extra investment that the Government have put in. That is welcome and will be welcomed by parents up and down this country. Some of the changes we have seen, with the increase in the cap and the extension of the scheme to cover children up to 12, are welcome and have removed some of the arbitrariness that we had with the employer-supported voucher scheme. Those things are all welcome.
Some of the issues that come up in the Bill highlight the fact that, while the scheme is a welcome step forward, it does not address some of the long-term challenges on affordability, accessibility and quality. I have three main concerns. My first concern is that higher-income earners are the most likely to benefit most from the scheme, because they consume the most child care. The Bill is a missed opportunity to target those on lower or more modest incomes, for whom child care costs are a barrier.
Secondly, it is likely that the scheme will lead to some child care cost inflation, and we already have very high child care cost inflation. The Bill is likely to further increase that, which will reduce the value to parents in the medium and long term, which is a shame.
Thirdly, parents in the most disadvantaged areas and those with disabled children are least likely to have access to the child care they need—child care that is affordable, accessible and high-quality. Because of the public money we are spending and because the tax-free child care does not come with quality conditions and probably will not drive new provision, the accessibility and quality challenges for those groups in particular—those in disadvantaged areas and disabled children—will probably not be addressed. A number of amendments could be made to the Bill that would improve the situation, and I am happy to outline those further.

Q 100

Catherine McKinnell: Thank you. I have a follow-up question for each of you. Sue, the Government’s approach to dealing with some of the added complexity that you outlined—it sounds quite worrying—is to provide a better off calculator for parents, presumably in an online format. Do you think that that is adequate and, if not, what else do you want to see the Government provide?

Sue Royston:  No, I do not think it will cover all situations. I think it could be quite misleading if someone goes in and looks just at one point in time. First of all, the current system and tax credits deal with a yearly income, so there would certainly need to be a question that said something like, “If your income is likely to change in the future, you need to seek advice.” I do not think any online calculator could deal with that situation with yearly income. People in the tax credits system find that complicated enough as it is.
In terms of realising about not swapping, it becomes hugely complicated. We share Victoria’s concerns on the self-employed, where income is often very lumpy. The calculator would also need to say, “If your income varies a lot, you need to seek advice.” The fact that someone is better off at one time of year does not mean that it is a good idea to swap, because the next month they might need to go back to universal credit, because they might have virtually no income. They would then not be allowed to switch again later in the year without losing out on four years of income.

Q 101

Catherine McKinnell: Victoria, I appreciate that you are very much highlighting some of the concerns and complexities that you think will arise. Does the Low Incomes Tax Reform Group have some proposals on how some of that can be addressed? Are there suggestions for the Government? I appreciate that that might be a difficult question to answer, and I appreciate that you might not have the proposals at the moment.

Victoria Todd:  On the tax credit interaction, I think that there are ways that clause 29 could be amended so that the comparison is not with the whole tax credit award. Rather, it could be with just the child care element. There are other options, such as to allow people on tax credits and universal credit to have tax-free child care in addition, and that would get rid of all the interactions. Certainly, we do think that there are things that can be done.
We share Sue’s concerns about a better off calculator. I think we say in our evidence that we worry that it may well be impossible to create something that can cover all the scenarios. I think people at the lower end of the income scale will be caught in a very difficult position, because if you have higher income and you are not currently receiving any child care support, it is fairly straightforward. The scheme, as a stand-alone scheme, is okay, but when you introduce all these complexities it is a problem.
We do have some suggestions for how things could be smoothed for the self-employed—things like averaging of income across the year, rather than just the three-monthly period. That will not pick up all the self-employed, such as people who maybe just have a bad year but who still need that support—our suggestion would maybe be some sort of minimum hours threshold as an alternative.

Q 102

Catherine McKinnell: Thank you, that is very helpful.
Just one more question for Ellen. You mentioned in your opening comments some of the challenges for parents of disabled children. Would you mind setting out what you think are the main issues in the Bill, where you feel that some of those additional challenges are not being addressed?

Ellen Broomé:  Absolutely. I think it might be helpful to set out what some of the extra challenges are for parents of disabled children. Obviously, they face higher costs and there is less quality provision for them. We recently supported a parliamentary inquiry that spoke to a lot of parents. We found that 38% of parents paid between £11 and £20 an hour for their child care and 5% paid more than £20 per hour. This is obviously very high. As a result of the child care costs, 72% of those families had cut back on or given up work. These are some of the challenges.
There are three changes that I would really like to see in the Bill, which I think would really help parents and disabled children. One is around the definition of “eligible child care”. At the moment, it is only for the main purpose—work—which is fine, but we know that there are very intricate complexities, and the difficulty of parents with disabled children managing caring and work means that sometimes they need to buy child care outside work hours, maybe on a Saturday, or maybe respite care or short breaks. It would be very beneficial for those parents if we could see an extension of the definition of “eligible child care”.
The other change I would very much welcome is raising the age for eligible children, so that all parents of disabled children under 18 were eligible to claim for them. I think that would bring this piece of legislation in line with other legislation that we have, including the Childcare Act 2006. That would be welcome. We know that parents of disabled children need to access child care for longer than their peers who are parents of non-disabled children.
The third thing—this might be slightly pie in the sky, but I will put it out there—is that we would really welcome some local pilots on how we can deliver effective, flexible, high-quality child care for disabled children, probably jointly between the Department for Work and Pensions and the DFE. I think that would help, because we really do not know what would best help. Another way that you might be able to do it is to raise the 20% figure to 30%, so that parents of a disabled child who were claiming DLA, for example, would get 30% back, rather than 20%.

Q 103

Maria Miller: Ellen has covered a great deal of what I was going to ask with regard to disabled children. It was very interesting to hear your comments.
Just one question on that. In terms of the supply side, have you any evidence that would suggest that the sort of changes you have talked about would stimulate increased provision, or do you feel that you would need a pilot to be able to establish that?

Ellen Broomé:  A pilot would be very welcome. However, the idea of perhaps having a higher percentage for disabled children might stimulate that, because we know that demand is out there, but parents cannot necessarily afford to pay for it and providers cannot afford to provide the quality child care that they need for disabled children on the money that they can receive. It would therefore be an interesting idea to take forward, perhaps in a pilot with a view to rolling it out nationally.

Q 104

Maria Miller: My other question is about the information available for parents. It was interesting to hear your thoughts, and we had a great deal of evidence this morning about how best to ensure that parents are making the right choice. Is there anything further that you would like to add on that? Obviously, you were concerned about whether an online calculator would be sensitive enough. What would be sensitive enough? What would your recommendation be?

Sue Royston:  Given the situation as it is, it would have to tell people to seek advice in certain situations. I do not think that there would be any way around that. As I said, we are keen for there to be an amendment that would allow tax-free child care to go ahead while allowing the whole interaction to be looked at more closely to see whether there are other ways. We put forward one way, which would be to combine schemes, as Victoria just said, so that you got part of your support for child care costs through universal credit and the rest through tax-free child care. As your means-tested amount tapered away, you would still have that. I would not expect the Bill to suggest that, and I know that it would have to be examined in a great deal of detail, but it would be good for the future if the Bill could allow the possibility of it at least being investigated.

Ellen Broomé:  We have quite a lot of challenges and new systems in place for parents, including universal credit, tax-free child care and so forth. One of the things that I would welcome is a well-funded information campaign from central Government, working with employers, schools, health visitors, children’s centres and so on, to ensure that parents really have the information that they need to make decisions about what is best for them. A well funded and above-the-line information campaign would be very welcome.

Q 105

Lucy Powell: I have a couple of questions for different people. Ellen, you said that you thought that the scheme would lead to price inflation in the sector. Could you expand on that and perhaps use this as an opportunity to talk to us about how that could be changed? Could some additional clauses be put into the Bill to stop that happening?

Ellen Broomé:  What we have seen before with cash injections, which is what the scheme effectively represents, is that they are welcomed by parents, but the problem is that they do not necessarily expand the amount of child care; they just affect the amount of disposable income available. What we have seen from evidence abroad and work that we have done here in the UK is that such cash injections drive up price inflation. In Australia, for example, when a similar child care rebate of 30% was introduced, it coincided with a rise in child care costs of over 100%. In a single year, 2008, when the child care rebate was raised to cover 50% of costs, the prices rose by 10%. You can see the significant effect there in Australia.
Closer to home, we saw child care costs increase above the rate of inflation in both 2005 and 2006, when tax credit support for child care was increased and the Government brought in child care vouchers. In those two years, we saw child care costs increase by 18% for both under-twos and childminders.
This is happening in the context of prices already rising quickly— we have seen a 27% increase in child care costs across the board over the past five years. This type of cash injection could potentially lead to that. There may also be points about how we spend the money, such as attaching quality conditions that might help to go some way towards addressing that.

Q 106

Lucy Powell: Sue and Victoria, you have both spoken very well about some of the anomalies in cash flow and about people who have lumpy incomes, if you like. Sue, could you explain that a bit more? What are the anomalies with payments in advance or in arrears, and what might those mean to a family who are moving between the systems and are on relatively low pay or have a moderate income? Victoria, could you say a bit about how you think we could tackle some of the issues with self-employment and lumpy incomes?

Sue Royston:  First of all, in tax credits, child care payments are paid in advance, which has led to some problems with overpayment. As a result, in universal credit, child care payments are going to be paid in arrears. Our greatest concern about child care overall—and we have been really supportive of universal credit and have said from the beginning that we think it is a good system—is about the current proposals for how child care support will be delivered in universal credit. There are huge issues. It will not just involve people in one initial loan, as some people thought; people will have to have a series of loans and will get into debt with repayments. Budgeting advances were meant to cover that, but will not. There will be a reporting period; for some people that will be as long as a month, but other people will have only three days—it will depend on the assessment period and when child care payments are due.
We see that as creating huge problems. Child care accounts are a great thing and will be a very useful budgeting tool in tax-free child care. We would like to see them being made available to people in universal credit.

Q 107

Lucy Powell: In effect, in the tax-free system—I know you will want me to keep to the remit of the Bill, Mrs Main—there is payment in advance under the scheme we are talking about. What you are proposing is making that available to more people.

Sue Royston:  Yes, we would like to see it left open in the Bill that that could go through. That would create a much smoother journey from one to the other.

Q 108

Lucy Powell: Victoria, could you talk about the issue of lumpy payments and self-employed parent rights?

Victoria Todd:  It is mainly the self-employed. We welcome the fact that tax-free child care can be taken up by the self-employed, unlike child care vouchers. That is really positive. As I said before, we are concerned about people such as farmers who might have income in one part of the year and then lots of expenses, so that in one particular entitlement period they have a loss, essentially, when you look across the three months. We would like to see some changes to the rules for those people so that they could have an alternative, which could be seeing whether they would meet the threshold over the tax year.
As I said before, that will not cover everybody. There will still be people who have bad periods or a bad year and will still need child care support. We would therefore like to see a minimum hours requirement of about eight hours a week as an alternative for those people.

Ellen Broomé:  Again, I echo what we heard in the previous session about operating and making sure that the value is not eroded for those parents who have very high child care costs. That is important. It would be very welcome to see that across the board in child care support in general.

Q 109

Charlie Elphicke: Ellen, you raised the concern that if you put more money into child care it will simply cause costs to go up, because there is a limitation on supply. Do you agree that costs would not go up if there was a greater opportunity to expand the supply of child care and make more child care available?

Ellen Broomé:  Mechanisms—start-up grants and subsidies—to support the supply of high-quality child care would be very welcome, particularly in disadvantaged areas. There are high barriers to market entry, and we are not seeing enough people coming into the child care market. That is why we have an under-supply, which drives up prices. Effective mechanisms to drive up supply would be very welcome, but they would have to recognise that child care is not cheap to provide because you are looking at well-trained adults providing care for our future, so it should not be done on the cheap, if you see what I mean.

Q 110

Charlie Elphicke: I represent Dover in east Kent, where there is a lot of deprivation—a lot of parents do not have a lot of money and find child care very expensive. A few years ago there was a war on childminders and many of them left; they were concerned that costs had risen. Does that accord with your experience of the world, and was it a shame that that happened?

Ellen Broomé:  Childminders provide an excellent way for many parents to access flexible child care, particularly at the start or end of the day, or around the school day, and childminders are very well liked by parents who want to see their children cared for in a more home-like environment. The decrease we have seen in childminder numbers is a disappointment, because they provide something important for parents. There are steps that the Government and, indeed, local authorities could take to support childminders better and to keep more of them in the profession—to bring new people into the profession while retaining more. Childminder agencies might be one of the tools required.

Anne Main: I think that that was slightly out of the remit of the Bill.

Q 111

Charlie Elphicke: I am going back on to topic. In your evidence, Sue, you say that you are concerned about the interaction between support for child care costs and universal credit. What particular aspects of interaction concern you most?

Sue Royston:  How difficult it is going to be to decide which one to claim for those people—I think estimates are that there are between 50,000 and 100,000 people. Half of all children in households in the UK will be in households on universal credit, so we are talking about a lot of children on universal credit. Where you have varying levels of income, there is quite a range of people and it will change over time, so it is not enough for people to look at whether you are better off at this point in time—it will keep changing, and it will be very hard for people to assess that.

Q 112

Charlie Elphicke: In the context of the Bill, do you think that your concerns about universal credit will be relevant from the point of view of putting money aside and having the tax addition?

Sue Royston:  It is relevant, because people may actually move from one to the other wrongly and get less support than they should. They may move into tax-free child care and as a result get less support. We are also concerned about the journey backwards and forwards, and about the problems with switching and making decisions. The Bill is obviously welcome, but it adds a layer of complexity.

Q 113

Sammy Wilson: Can I go back to one of the points you made, Victoria, about people whose income might vary over the year? You gave the example of a farmer, who might have a lot of money coming in at one part of the year, but expenses going out at another. Some of the other witnesses have said to us that the three-month registration or enrolment only adds to the work that parents would have to undertake anyway. Do you see any merit in having longer periods—either a six-monthly or yearly registration? Are you content that we should stick with the three-month period but allow variations for individuals?

Victoria Todd:  Certainly in our submission on the draft regulations we picked up on the point that it will be another administrative burden for the self-employed to have to look at a different test. We already have tax credits, and people may well have to do something monthly for universal credit, so it is an additional burden. There is a lot to be said for trying to get definitions aligned as far as possible. If income definitions are aligned, it is easier to do something every three months; if there are slight differences, which I think is the case here, that creates an administrative burden, so we would like to see a longer period in that respect.

Q 114

Sammy Wilson: Or else better definitions.

Victoria Todd:  Or else more aligned definitions.

Q 115

Sammy Wilson: On your point about the cost, Ellen, one suggestion has been that rather than saying, “Look, you have £10,000”—or whatever the maximum happens to be—“you go out and spend it and you get your top-up from the Government,” it could be linked to the number of hours, so that it stops the inflation of costs because it is linked to the amount of hours you can purchase. Is there any merit in that? What difficulties would you see in applying that across the country?

Ellen Broomé:  I have to say that I have not come across that particular proposal so I have not had a chance to do any of the analysis on it. I am happy to take that away and come back to the Committee, but I do not have an answer.

Anne Main: If you would like to write in, I am sure the Committee would find that helpful.

Q 116

Charlie Elphicke: Sue, I want to pick up on a few other aspects of your evidence. You say there are a number of anomalies in the legislation as to who can or cannot receive support through the tax-free child care scheme. Can you detail the anomalies that concern you?

Sue Royston:  The main one is that if a couple are on tax credits, both have to be working for at least 16 hours to be eligible for help with child care costs. They may well be on working tax credit but not getting the child care element. Particularly with respect to disabled children, there may well be a couple with one working full time and the other, say, working 12 hours because of caring responsibilities. They are not eligible for any help with their child care costs.
The messaging from tax-free child care has been that if you are working and earning at least £50 and you are not eligible for help with child care costs from anywhere else, then you can get help with child care from the tax-free child care scheme. These people are going to find that very complex because, as Victoria said, their tax credits will stop.
The second anomaly is that the Bill is not at all clear—and we have not been able to get clarity on this from officials—about what will happen to people who, say, live in London and have high rents and so are on housing benefit but not tax credits. It is little understood but you actually get help with your child care costs through housing benefit. Someone who was not on tax credits would in effect be getting an extra 65% of their child care costs paid through an increased amount of housing benefit. There has been no clarity about whether or not they are in or out of tax-free child care. Either way, it is going to be very complicated dealing with that anomaly.

Q 117

Charlie Elphicke: Do you accept that for someone who is above the benefits threshold and cannot access any form of credits and welfare, this will be a benefit? It would effectively be more for the middle.

Sue Royston:  It will be very helpful. We just feel that the exclusion should not be of tax credits. It should be of those people who are on the child care element of tax credits, because it is not fair if they have got a lower income but are not getting any help with their child care costs.

Q 118

Charlie Elphicke: Do you have any idea how many people would be affected by your particular concern?

Sue Royston:  I do not, because you do not have to declare. You will be told not to declare your child care costs to tax credits if you are not eligible for the help.

Ellen Broomé:  The reason why it is so important to get this interaction between universal credit or tax credits and the new system right is that it determines people’s working patterns. We want to see encouragement of people, enabling them to go back to work, stay in work or take on more work if that would help their families. Some of the interactions that we are talking about, and some of the functionality of the scheme in itself, would hinder that. It would not enable parents to have the clarity of what kind of support would be available and, therefore, what type of work they would be able to do. That is why it is important to get this addressed.

Q 119

Lucy Powell: On a slightly broader issue of the spread of the new money that is coming in, I think the Government have estimated that the additional money going in to helping families with child care costs through this scheme would be about £750 million a year after a couple of years. What is your view about who the main beneficiaries of that £750 million a year would be, versus perhaps who some of the lesser beneficiaries, or even the losers, might be? Who do you think they will be? Victoria, you might start us off.

Victoria Todd:  As we have just said, people who are not currently getting any support in any sort of child care scheme are clearly going to benefit from the introduction of this scheme.

Q 120

Lucy Powell: They are largely the self-employed.

Victoria Todd:  The self-employed, yes, because they could not claim child care vouchers, and people who have higher incomes, who are outside of the current access.

Ellen Broomé:  Just to say something positive, it provides the support on a per-child basis, which is really welcome, but I think we know that 80% of those eligible for the tax-free scheme will be in the top 40% of income distribution. It is really important to remember that the top of the income distribution will benefit more, because they are more likely to consume large amounts of child care. Personally, from our perspective, we would have liked to see more targeted towards low and modest-income families, where child care costs are a real barrier to entering or staying in work.

Sue Royston:  We would agree. For instance, in universal credit, we think that there should be 90% support and not 85% support, because although it is very welcome for many, a lot of people who are lone parents on the lowest incomes, with high child care costs, are going to be worse off than under the current system, and we are worried about that. So yes, we would welcome more support for those on lower incomes.

Q 121

Lucy Powell: Finally, we have been talking a lot about the interaction between universal credit, or tax credits, and this scheme, but one aspect of that that we have not really discussed is the cliff edge there as well. Do you see that as being a barrier to work? Potentially, somebody who is getting 75% or 85% of their child care costs supported could suddenly go to getting 20%, if they just have a small increase in their salary. Do you see that cliff edge being an issue, in terms of people not wanting to take extra hours or not wanting to take a pay rise?

Sue Royston:  I think it is the lack of the smooth journey between the two, because obviously the people who are getting 85% are not actually receiving that, because that is means-tested. By the time they come to that, they will be getting more or less the same, so it is not a financial cliff edge, but it is a cliff edge in terms of having to change schemes.
We think it is about making that journey smoother. Life is very complicated and there is a plethora of child care support out there, and it is very complex. The smoother you can make that journey between schemes, the easier it will be for people to move on in work.

Q 122

Andrew Jones: You were making some comments about child care being paid in retrospect as I walked in—sorry, I had to leave the room for a few minutes. Universal credit is being rolled out in my constituency, and that roll-out is going very well. I understand that on universal credit, child care can start a month before you start work and it can continue for two months after, if you are in and out of work, to ensure continuity. How does it work in terms of those comments about retrospect?

Sue Royston:  It is the payment. If you find a job, you then have to find child care. The child care provider will ask you to pay, say, £800, and you then have to pay that up-front and report it to the Department for Work and Pensions. It will then pay you back, but it will not pay the full 85% of £800; it will only pay 85% of the amount of child care you have had by the time the next payment comes.
So in effect, by the time the next child care payment of another £800 is due, you still have not had enough money to pay for that, so you are going to need to borrow a second amount of £800—or £600, because you have had one week’s money—before you finally get 85% of £800. So you will continually have to be borrowing money in order to pay your childminder to report your costs so you can then get it back.

Anne Main: Okay. If there are no further questions from Members, I thank witnesses on behalf of the Committee for giving their evidence. We will now move on to the next panel.

Examination of Witnesses  -   Sam Royston and Alison    Garnham gave evidence.

Q 123

Anne Main: We will now hear evidence from our final panel of witnesses this afternoon, from the Children’s Society and the Child Poverty Action Group. Because we have been running a little early, we have plenty of time, but obviously we can finish when the Committee feels that it has exhausted its questions. I ask the witnesses to introduce themselves for the record.

Alison Garnham:  I am Alison Garnham, chief executive of the Child Poverty Action Group.

Sam Royston:  I am Sam Royston, head of policy and public affairs at the Children’s Society.

Anne Main: I do not know whether you were in the room before we began, but the acoustics in here are pretty poor, so we ask you to speak up if you can. Some of us, myself included, are struggling to hear some of the witnesses.

Lucy Powell: Are you okay with us calling you Sam and Alison?

Alison Garnham:  Indeed, yes.

Sam Royston:Yes.

Q 124

Lucy Powell: Sam, I have asked you this before, but so that everybody else knows, Sam is Sue’s son—not that it matters—so he is as across the issues as his mum. First of all, by way of introduction, can you say a little about your own views of the scheme—its upsides and any concerns that you might have from your respective organisations? We will start with you, Sam.

Sam Royston:  Sure. The first thing to say is that we welcome any additional support with child care costs to help families ensure that work pays. We have three principal concerns about tax-free child care. The first is the balance of support with child care costs and additional money found for helping families with child care costs. We are slightly concerned, as an organisation that works with some of the most disadvantaged families and children in the country, that tax-free child care, because households in receipt of child care costs for universal credit or tax credits are not entitled, will not provide additional support for that group of households.
That is not to say that we do not recognise that some higher-income households also need extra help with child care costs, but given the amount of money being spent on introducing tax-free child care, we feel that it could have been better balanced towards some of the lowest-income households.
The second thing is that as an organisation that works principally with some of the lowest-income households, we are concerned about the interaction in support between households receiving child care support through universal credit or tax credits and tax-free child care: in particular, the problems that some households may face moving between the two systems. Our third concern is about parity of treatment of households on universal credit and tax credits, compared with those on tax-free child care.
We welcome some of the really helpful tools given for budgeting for households on tax-free child care, particularly payments in advance of having to pay out child care costs. We would like to see households on lower incomes treated in the same way, and we are concerned that many of the families that we work with are going to struggle, particularly with their first payment of child care costs on moving into work.

Alison Garnham:  I do not have much to add to what Sam said; it was pretty comprehensive. We agree entirely with the points about the alignment of the two schemes. The way in which the two schemes interact has been one of the biggest problems with the legislation that is coming forward.
I agree with Sam that we really welcome any new money for child care costs, and it is incredibly useful, but our concern is that out of the £1 billion, most of it goes to the top 60% of earners, and most of that goes to the top 40% of earners. There is an issue there about what the rationale is for the scheme, and whether some of the money could be used more strategically—for example, to expand free entitlement, to expand extended schools and to work on improving quality across the sector. That is desperately needed, particularly for the lowest-income families, where improvements in quality have the longest-term impact on children’s outcomes.
Policy Exchange did some calculations about clause 10 and the level of income you are taking into account. For example, if you were to cap tax-free child care at £60,000, it would save £238 million, a not insignificant amount of money. Some of that could be used to deal with some of the alignment issues that I am sure we will get on to, such as how you deal with families with disabled children and why tax-free child care deals with any number of children while universal credit deals with a maximum of two. There are other alignment issues like that.

Q 125

Lucy Powell: Excellent. Those are some of the issues that we discussed earlier as well. Alison, perhaps I could just ask you to expand a bit on the final point you were making there about the income level and where you see that having most impact on people’s decisions to go back to work; about how under the current system up to £160,000 per individual could be as much as £300,000 per household; and about decisions to go back to work and where you think some of those lines would be better drawn.

Alison Garnham:  For families with one or more partners on up to £150,000, there is no clear evidence, as far as I can make out, that tax-free child care would have any impact on increasing their labour market participation. At that level of income, decisions are not being determined by child care costs. However, at the other end of the labour market, they certainly are. Child care costs act as an enormous barrier to paid work for low-income families, and they act as a barrier to progression in work and staying in work.
The figures on child poverty are really stark. If there is a couple with nobody in work, the child poverty rate is something like 71%. If one person works full time, it drops to 29%, but if both are able to work it drops to 8%. The gains in terms of reductions in child poverty and labour market participation are clearly enormous, and child care costs are a really important part of that.
One of the other things that has happened is that help with child care costs has reduced, and under universal credit it will reduce again. We are very grateful that the Government have increased from 70% to 85% what will be on offer, but there are a number of other problems that still need some work. For example, in our work that we produced recently on the cost of a child, we discovered that very shortly, even a one-earner family with one child will hit the ceiling on child care costs in universal credit, so there is an issue about whether the ceilings need to be increased under universal credit.
There is also an issue that for disabled children—I am sure other people have already raised this—the costs are higher and therefore there is a case to be made for having a higher child care cost ceiling for disabled children. Also, as I have just said, under universal credit help with child care covers only one child or two children. Tax-free child care applies to any number of children. There is a case there for aligning the two schemes, either by reducing the provision in tax-free child care or by increasing it under universal credit. That would not, in fact, require an enormous amount of money.
The other area that needs attention is where parents need to go into training. So you may have one partner working and one partner training, and that would disqualify them from tax-free child care. Equally, in universal credit you cannot claim child care costs when you are in training. So that is another area where we think some of the money could be invested to benefit low-income families.

Q 126

Lucy Powell: Do you have any statistics on how many families that might affect? At the moment, they might get vouchers or some help if they have one earner, but if the other partner is in training, in education or on a course, they do not. Do you know how many families we are talking about, roughly?

Alison Garnham:  No.

Q 127

Lucy Powell: I have asked a few people; no one knows. That is fine.
Sam, on this issue of fairness and the kind of spread that you said is one of your main concerns, have you anything more that you want to add, in terms of that cut-off of income and where that sits in relation to the impact on the labour market?

Sam Royston:  Our principal concerns with regard to fairness are about payment and delivery. We think there are several things that have been done with the introduction of tax-free child care that will be beneficial to many of the households receiving support, and that is particularly true of using top-up accounts, so that the claimant pays in and HMRC pays in to top up those payments. So those households receive the support they need prior to paying out their child care costs.
We are really concerned that many of the families we are working with will not get help with child care costs through universal credit until after they have both paid for and used their child care, and that they will require an up-front loan or some form of assistance for their first payment of child care costs. We are really worried about the message that that sends to the lowest income households—that the first thing you need to do when moving into work and taking on child care is to get into debt. We do not think that is going to help, either in terms of supporting the children in those households to get the best outcomes or in terms of increasing parental employment.

Q 128

Maria Miller: Thank you for your thoughts so far.
Alison, you were talking about the challenges that parents with disabled children face in getting into work and staying in employment, and that is really regardless of their income levels. We heard a little earlier this afternoon about the differential in costs between providing child care for a disabled child and for a non-disabled child: some £11 to £20 an hour versus considerably less for non-disabled children.
Is there a chance here to explore a little more the opportunity to support parents with disabled children into employment through this Bill, and also to stimulate the market? When I speak to parents with disabled children I hear that they find it difficult to get the right child care, and that that is often why they fall out of employment. Could you reflect on that and give us some ideas about how we can use this opportunity?

Alison Garnham:  There are two points about that. One is that at the moment tax-free child care proposes that support for families with disabled children goes up to the age of 17, but it would make sense for that to go up to 18, because the care needs do not go away at 17, and that would be parallel then with universal credit, where the scheme does go up to children aged 18. That is another kind of misalignment thing.
Regarding the costs, you are absolutely right. Child care for disabled children is both much more scarce and much more expensive, so there is a case to be made for perhaps allowing a higher percentage of costs to be covered through tax-free child care for parents with disabled children. Again, there is a similar thing in universal credit. From our perspective, we want to look in parallel at universal credit too, because in universal credit there is no different ceiling for parents with disabled children. There is a case for that too, so that both schemes could mirror each other.
In terms of supply, it is very difficult for providers to invest in specialist care for disabled children, even though they are required to; under the Disability Discrimination Act, they are required to respond to a need if it presents itself, but that will involve extra costs, so you can see why those costs are perhaps getting passed on to parents. Some support with that would be really useful.

Q 129

Maria Miller: Have you done any work on assessing the availability of specialist child care support for disabled children in the nursery sector?

Alison Garnham:  We have not, but I think that the Family and Childcare Trust has done in the past. When it does its child care cost surveys, it asks local authorities whether they have sufficient child care for disabled children, and it is one of the areas where they repeatedly report that they do not—child care for disabled children but also for older children and for people working atypical hours. Those are the typical points where local authorities report a dearth of provision.

Q 130

Catherine McKinnell: An issue that has been considered today is that the parents we are talking about—who you particularly are here to represent—have challenges with paying for child care. That is influenced by the supply side in the market and the rising costs that we have seen. I have two points. First, what impact do you see the Bill having on the supply side of child care? Secondly, will there be sufficient supply to meet the demand when additional parents are looking for child care as a result of the Bill, as is anticipated? Will they be able to find it?

Alison Garnham:  It is really difficult to talk about market impact because there is an imperfect market operating in child care. For higher-income couples, the child care market probably does operate as a market, but for lower-income families, it really does not; it is completely dysfunctional. In the most low-income areas, there is least supply and the lowest quality supply, which is the opposite of what you would want. It does not function terribly well. Can you repeat your question?

Q 131

Catherine McKinnell: What do we do about increasing the supply side? Will the Bill do enough, or should the Government be doing more to support supply side?

Alison Garnham:  The worry about tax-free child care is that it cannot do much to increase supply because it is essentially demand-led. Therefore, it is vulnerable to increasing costs. It cannot limit those costs. I suppose you could introduce mechanisms to try to do that. You could introduce mechanisms to try to use the money to increase quality—for example, giving people more money if it is a higher-quality setting. That is generally quite difficult. It is widely recognised that the countries that produce both high-quality and low-cost child care are those that fund their supply sides. My general thought is that that should be the direction we are going in with new money.

Sam Royston:  I can say that the Children’s Society delivers eight or nine nurseries as part of Sure Start children’s centres—a small component of all the services we deliver, but an important one none the less. Many of those are in some of the most disadvantaged areas of the country, often with high levels of unemployment. Unfortunately, I do not think that this policy in particular will help, in those areas at least. It may help in some areas where it encourages some middle to high income potential second earners to move into employment and, as a result, use child care, but most of the families in areas of the highest levels of deprivation will not be entitled to tax-free child care because they will be receiving tax credits, or universal credit if they move into work. Part of the solution has to be ensuring that tax credits and universal credit child care components work effectively. I come back to the concern that payments in arrears could result not only in an impact on parents getting into child care debt, but suppliers having problems with child care arrears because parents are struggling to pay. There is also a concern that in many areas across the country, we hear anecdotally at least, local authorities that used to subsidise child care provision in areas of very high disadvantage no longer feel that they are able to do so. In some ways, that was quite an effective measure in delivering support for those child care facilities, because it provided that—

Anne Main: I think we are wandering off somewhat. Is there anything else that you wish to add that is in line with the Bill?

Catherine McKinnell: Sorry, that threw me a little. There is an issue in terms of the Bill and whether it is able to address some of the challenges.

Q 132

Charlie Elphicke: Sam, I wanted to get it clear in terms of what you were saying about how a different political choice should have been made about the Bill and that there should have been more provision for the least well-off. Will you confirm that, under universal credit, in 2016 people will get 85% of costs to a maximum of £7,752 for one child and £13,296 for two children?

Sam Royston:  There is certainly no question that child care support for people on the lowest incomes is higher than child care support for people on the highest incomes. There is no question about that at all. The question is where additional support should be targeted. Despite that support with child care, the families that we find struggle most none the less with the cost of child care are the ones on the lowest incomes. Even though they are paying out a smaller proportion of their child care costs, they are still struggling more than families on, say, £60,000 or £70,000, which is why Alison’s point about reducing the income threshold for receipt of help through tax-free child care to £60,000 or £70,000 seems a strong one. Those families on the lowest incomes, despite that extra help, are still struggling. That is why we think that that is where the extra support should be targeted.

Q 133

Charlie Elphicke: I represent a deprived constituency and many of my constituents, many of whom work hard and are just above the benefits threshold, do not get any help. They say, “I pay my taxes, but I get nothing back and no support for this. It is really unfair.” Do you accept that for them more for the middle is important and makes a difference to their lives?

Sam Royston:  Of course, there is some support for those groups, such as the three and four-year-old offer. We welcome that the three and four-year-old offer is now a universal early years education offer. That seems a progressive step forward. However, we have got to put things in the context of which group we are talking about. Households in receipt of the child care element of tax credits or that are receiving child care through universal credit could very easily have household incomes of £35,000, or even £40,000 or £45,000 a year. We are not talking just about the very most deprived and disadvantaged households; we are talking about households that are relatively up to low-to-middle incomes. Actually, if you want to provide extra support for many of that group of your constituents, the best targeting would be through tax credits or universal credit.

Q 134

Lucy Powell: I am going down the same line of questioning, for the purposes of everyone in Committee fully understanding this. The figures that the hon. Member for Dover highlighted in terms of the full value of the child care component of universal credit is for those on the very lowest incomes, but as incomes go up to, say, £35,000 or £40,000 a year, the figure tapers off significantly, so the full value that we were discussing there would not be available to a family with a household income of £35,000 a year, for instance. Moreover, as Mr Elphicke mentioned, for those just above the threshold, they might have child care costs that are only around £5,000 a year maximum per child and therefore would actually qualify for, say, only £1,000 a year. So I think what you are describing is a more progressive system where that taper is perhaps a bit shallower, but it extends beyond those who currently qualify, or you bring the taper of tax-free higher up so that that overlap then—do you want to expand on that for me?

Alison Garnham:  Then you would take in more of those people just above universal credit. If you made universal credit more generous, it would take in some of those families. But as you pointed out, it is tapering out at that level, so people are getting a small contribution towards their child care costs. In fact, for most people on tax credits currently who claim the child care element, their average payment to help with child care costs is £55 a week, so people tend to self-manage and claim relatively small amounts. Part of the reason for that is because the proportion they still have to pay—the 30%—is a lot for them to find, particularly in an expensive area like London, where 30% of a lot is a lot. They struggle to pay the proportion that they have to pay themselves, so they tend to be self-limiting and claim less than you might expect them to claim.

Q 135

Lucy Powell: Or alternatively, as we heard earlier today, possibly make the tax-free scheme, the child care accounts, open to families in receipt of universal credit or tax credits, so you level off the crossover of those two schemes, possibly funded by thinking about lowering the amount. Is that what you were talking about?

Alison Garnham:  Yes. At some point in the future, you could think about having a single scheme. It is probably a long way off, but you could have a single scheme outside of tax credits or universal credit. It could either be administered nationally or at local authority level. In New Zealand, they do it that way, and in that way they can make the payments sensitive to level of quality, how many hours you have used and so on. But we are a long way from that, because the two schemes are so misaligned.

Q 136

Charlie Elphicke: To deal with the tapering issue as you come off it, do you think it should carry on until, say, £40,000, £50,000 or £60,000, as it did under tax credits and that that would be a better system? Is that your case?

Sam Royston:  I think one option should at least be considered—there should be more room for consideration; I welcome sessions such as these to go through some of that thought process—and one option to consider is providing tax-free child care to those households on universal credit and providing a lower universal credit entitlement that is topped up with tax-free child care. So they have got the same amount of support, but they have received it through a combination of universal credit and tax-free child care. Then, as Lucy says, the process by which you come off universal credit would not mean you then needed to claim tax-free child care separately. You would already be on it. So it would give a smooth transition process out of universal credit and on to tax-free child care, making the two systems much more clearly aligned than they are at the moment.

Q 137

Charlie Elphicke: To be clear, your preference would be to reduce the threshold where universal credit ends—bring that down—but then have a longer taper for child care support.

Sam Royston:  Effectively, yes. Provide, for example, a 65% or 70% child care element of universal credit, then top that up for those households with a 20% child care provision through tax-free child care. They would effectively be getting the same amount as the Government currently propose, but their support would be better aligned between receiving support for universal credit and receiving support after your income has grown enough to have left universal credit.
One of our really big concerns is that a lot of the families that we work with aspire to get off benefits altogether. Many of them will never do that, but many of them will aspire to get to that level of earnings. One of the challenges with the way in which tax-free child care works at the moment is that it makes that transition all the more complicated, because when you move off universal credit, you then have to claim tax-free child care. You have to decide at what income threshold it is appropriate to make that transition. If your income falls again, it could be difficult to switch back on to universal credit. Having the two systems work more closely in parallel could help some of those families who aspire to move beyond the universal credit income limit.

Q 138

Charlie Elphicke: Lastly, do you think it is welcome that universal credit is entirely separate from child benefit, that child benefit will continue to be paid separately and that child maintenance payments will not affect universal credit?

Sam Royston:  Right now, there is probably enough in universal credit. Having child benefit as a separate system guarantees that, at least for the transition period while universal credit is introduced, people will continue to get child benefit if universal credit stops or if there is a problem with payment. That would be my principal concern. We work with families who, for whatever reason, have had their tax credits stopped and are effectively relying on child benefit to continue for a period. If child benefit was moved into universal credit, I would be very concerned—

Anne Main: I think we are moving somewhat off the subject of help during the transition period.

Q 139

Catherine McKinnell: Your explanation of universal credit has been helpful. On the interaction between the new child care proposals and universal credit, and on the implementation of the scheme in practical terms, some concerns have been expressed about the time frames that are currently in play. This was obviously promised to be rolled out by 2015, and there are question marks over that timetable. There have also been a lot of question marks over the universal credit timetable. Will you say something about the impact on the families that you are talking about? When will they receive this child care support? What will be the impact of any delays in delivery?

Sam Royston:  The most important thing is to ensure that any additional support is delivered as quickly as practicable without creating enormous problems in the transition period. I welcome the Government’s approach, particularly with regard to universal credit. They are taking their time in making what will be a massive change for many families. That is the right approach. Yes, we want to see extra support, such as the 85% for people on universal credit, introduced as quickly as possible, but we also want to make sure that families do not get into a mess because the system is introduced too quickly. I will leave it up to the civil servants to decide the speed that they think represents the right balance between those two things.

Alison Garnham:  There are some issues in the interim period. Parents getting tax credits who are working fewer than either 24 hours or 16 hours, depending on whether they are a couple or a lone parent, are not currently entitled to help with child care costs at all. They will be waiting quite a long time before universal credit comes along. There is an argument for allowing that group to claim tax-free child care in the interim.

Lucy Powell: That is a good point.

Q 140

David Heath: You have mentioned disadvantaged areas several times. I tend to think more in terms of disadvantaged people, who are sometimes not in disadvantaged areas, as you will appreciate. Do you want to say anything about non-cost barriers to accessing child care? Do you have any thoughts about how we could improve access to child care in areas where that is not easy? Secondly, the working elements of a family may have atypical working days. How can we make it easier for them to access child care?

Alison Garnham:  Gosh! That’s the whole child care system. In the most disadvantaged areas, one of the difficulties is that providers find it difficult to survive. They often are not making any profit, or indeed are making a loss, because there are not sufficient paying customers to cross-subsidise the ones who are paying through tax credits. One of the things they perhaps need is more subsidy to enable them to function in those areas. Otherwise, they tend to go out of business. One of the good things in disadvantaged areas, and we are now talking about areas rather than individuals—

Q 141

David Heath: You are back to disadvantaged areas, but I am asking you to concentrate on people.

Alison Garnham:  You are right. Access to children’s centres and also the role that the maintained sector plays in all areas are really important. I think it is true to say that a higher proportion of children from disadvantaged backgrounds gain access to their free entitlement through the maintained sector—their local school. That is where the highest quality of child care is, so that is a really good thing. The problem is that there is not enough of it. Liz Truss has talked about increasing the number of spaces available at local primary schools in maintained sector nurseries, because that is where the quality is and there is real demand for those places.

Sam Royston:  There are obviously a lot of disadvantaged people living in non-disadvantaged areas, and it is very important to ensure that those families are supported. As an organisation that often works in some of the most disadvantaged areas, one of the problems we find is that living in a disadvantaged area can further disadvantage the individual. Enabling sustainable child care provision requires, in many cases, a reasonable level of local employment so that you can get paying child care customers and families using child care provision for employment purposes, and thus subsidise that support. Where employment rates are low, child care providers often struggle a great deal because they cannot get those working families to support them. That then has knock-on effects for the individual wanting to move into employment; they cannot get access to child care because the child care provider shut down as there were not enough people in employment. It is a cycle of disadvantage. More needs to be done to effectively target some of those providers in those most disadvantaged areas and ensure that they are able to continue, even if employment rates are low. That is why I come back to things such as local authority subsidies. We need to ensure that, even where employment rates are low, child care providers are able to continue because they are getting extra help from the local authority.

David Heath: I will not continue on this, but I invite you at least to consider that a poor family in a deeply rural area is a lot poorer than one in an area where there is a lot of access to provision.

Q 142

Maria Miller: I was interested in your point that, once we have lost child care, we have lost it. If it is not used, it is gone. What has your experience been in Wales? Under the current provision, employer-supported child care support for over-eights cannot be used in anything other than the local authority provision. It also cannot be used in the private, voluntary or independent sector. Have you seen any problems with child care providers in that part of the United Kingdom as a result of that stipulation? Have you had any dealings with the Welsh Government about how they will handle this new tax-free child care?

Anne Main: Is there a link to the Bill about the devolved functions?

Q 143

Maria Miller: Sorry, Mrs Main. This is directly to do with the Bill and what will happen in the devolved areas. I wondered whether you have had any dealings with the Welsh Government about how they will amend the way things work in Wales to ensure that this tax-free child care is available to families there in the same way that it is available to families in England.

Alison Garnham:  I think they are working on a new strategy at the moment in Wales, but I do not know what the timing of it is. Typically they have had a different child care structure there. Their child care strategy was different from England’s: they had Flying Start, which was what they called the free entitlement, and a different set of arrangements in their private, voluntary and independent provision.
The general point to make about Wales—and Scotland, in fact—is that they have less child care available and, actually, it is quite expensive, particularly in Scotland. To a certain extent, they have another job to do to get to the same position as the rest of the UK.

Anne Main: If there are no further questions from Members, may I thank the witnesses for their evidence? We have now come to the end of today’s proceedings. We will meet on Thursday at 11.30 am to hear further evidence.

David Heath: On a point of order, Mrs Main. Can I just check that we are still meeting at 11.30 am on Thursday, given that the first witness has been deleted?

Anne Main: Yes, according to the front of the amendment paper, we are meeting at 11.30 am and at 2 pm.

David Heath: Further to that point of order, Mrs Main. We agreed to an amendment to delete one of the witnesses at that session. Does that change the time?

Anne Main: I am informed that they were part of a larger panel and that the panel will still go ahead.

Ordered, That further consideration be now adjourned. —(Priti Patel.)

Adjourned till Thursday 16 October at half-past Eleven o’clock.
Written evidence to be reported to the House
CP 01 Low Incomes Tax Reform Group
CP 02 4Children
CP 03 Child Poverty Action Group
CP 04 Citizens Advice
CP 05 National Day Nurseries Association